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Stock picks by the pros
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December 23, 1999: 12:25 p.m. ET
Short list headed by WorldCom, Amazon, Best Buy, Phelps Dodge
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NEW YORK (CNNfn) - Tech stocks continued in favor among equity analysts and money managers
Thursday.
Also mentioned were several retailers, a handful of telecom stocks, and a pharmaceutical pick.
Here are some of the stocks recent guests on CNNfn are buying and why:
"I think there’s an opportunity, particularly on the cost-cutting side, for earnings growth over the next couple of years,” comments Richard Klugman, telecommunications analyst at Donaldson Lufkin & Jenrette of Bell Atlantic (BEL), which recently got FCC approval to enter the long-distance services market, "But,” he cautions, "I do think there are more opportunities in some of the more growthy names in the industry, such as MCI WorldCom (WCOM). The combination of long-distance, as well as the expansion into data, Internet and international [telecom services], having a strong-quality management, the M&A activity that the company has undergone, has really [left the company] with the most enviable collection of assets in the business.”
As for other big telecom players, comments Klugman, "there’s a lot of uncertainty with AT&T (T) surrounding their execution of their cable strategy, but on the other hand, there’s also a lot of enthusiasm surrounding their new wireless tracking stock. We think that’s a good idea.”
Andrew Barrett, technology strategist at Salomon Smith Barney, feels that Micron is a solid stock, but not necessarily a bargain, saying "Micron (MU) has done very well coming up ahead of the numbers. Their pricing is very solid, the business is fine. But [you also have to consider that] the stock has reflected this.”
"The market has been very uni-dimensional over the last year,” says Robert Morris, director of equity for Lord Abbett & Co., "particularly in the last six months, with technology really being the only place where people were making significant gains. In the meantime, the rest of the market has been flat to down, so that we [see] a big valuation disparity now between technology and the rest of the market. I think that’s going to change next year.”
"I don’t necessarily think that the technology group has to correct, but I do think that the market has to broaden. We’re looking for opportunities in areas primarily away from the technology group for good stocks to purchase in the new year. There are several sectors of the market [to] look at. One is in the services area. We have companies in computer services, which are still selling at reasonable valuations. Companies like Computer Sciences (CSC),for example. There are other companies out there which provide services, like Unisys (UIS), which is selling at below a 20 P/E [ratio]. Now, this is compared [against] some of the leaders in the technology sector; [they are], albeit somewhat higher growth rate companies - [but] they are selling at multiples of 100 times earnings. That’s why we’re talking about it. It’s a huge difference.
And I just think that the difference is too big and that some of these companies with good prospects can do very well next year.”
"We’ve seen the pharmaceutical group under pressure here in the last months of the year. Within the pharmaceutical area, a company like Bristol-Myers (BMY), [for example], offers very good potential looking forward.”
Apart from services companies and pharmaceuticals, Morris is also "looking at some of the basic industry sectors which have been far from the darlings of the market here for the last couple of years. We’re buying companies like International Paper (IP), Phelps Dodge(PD), believing that the global economic recovery is going to continue and that pricing is going to come back into these commodity markets. It’s already showing up. We’re seeing nice price increases in the paper area in particular. And that will drive higher earnings, higher return on equity and eventually higher stock prices for these groups.”
"We’ve been conducting a survey this holiday season,” reports William Julian, retail analyst at Credit Suisse First Boston, "trying to figure out which online retailer is managing the [issue of unreliable delivery] backhand successfully. In other words, are [your e-tail orders being] delivered on time and are you getting what you ordered? And in fact, the hit rates have not been that good. [However], our surveys say that Amazon (AMZN) by a wide margin, has done exceptionally well in this area.”
Julian also sees electronics retailers Best Buy (BBY) and Circuit City (CC) doing well, saying "they have been under quite some pressure recently and it largely is due to slowing sales trends because of PCs, which are not particularly profitable. What happened with PCs is somewhat complex: Internet service providers started offering rebates of $400 for PCs if you went in and bought one over the summer. And we think what may have happened is that demand for PCs skyrocketed this summer at the expense of sales this fall and [over] this holiday season. So it may have moved back into the year. We expect that will probably reaccelerate in the first half of next year.”
Julian’s last pick is do-it-yourselfer mecca Home Depot. "Home improvement does well throughout the year [and] Home Depot (HD) has been one of the favorite retail stocks out there. No question about it.”
The views presented here are solely those of the analysts quoted. They do not represent the opinions of CNNfn on whether to buy or sell shares of a particular stock. 
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